June 30, 2008

Florida court affirms consumers' right to sue insurers

> Posted by Julie Patel on June 30, 2008 04:03 PM

This year, Florida legislators banned the use of arbitration panels to solve disputes between the state and insurers over rates.

But what about the use of arbitrators in disputes between insurers and customers over claim amounts?

United Insurance Co. of America hoped to include mandatory arbitration in life insurance contracts, state regulators denied the request, United appealed and the First District Court of Appeal in Tallahasee issued a ruling today denying the appeal.

United's argument was that insurers have the right to resolve any dispute through arbitration because of the federal arbitration law. Meanwhile, the Office of Insurance Regulation said the state's insurance law -- which allows customers to take insurers to court over claim disputes -- trumps the federal law. The appeals court agrees.

"This was a very good decision," said Office spokesman Tom Zutell. "You can't even appeal an arbitration. Taking your disagreement through the court system allows consumers to have more federal and state constitutional rights and due process rights."

June 27, 2008

Does a condo owner need wind coverage?

> Posted by Julie Patel on June 27, 2008 03:50 PM

I got an e-mail from a reader whose insurer informed him it will no longer cover wind and hail damage. He's wondering if he even needs the coverage since the condo association owns and insures the main structure of the building.

If the roof blows off, he says, the condo association's insurance will cover it but what about the rain that gets into his unit? Will the homeowners policy, minus wind coverage, cover contents or is the rain damage considered a result of the wind?

"He would not be covered," Insurance Information Institute spokeswoman Lynne McChristian wrote in an e-mail.

Office of Insurance Regulation spokesman Tom Zutell's reply concurred: "Wind driven rain is considered wind damage, so if the resident does not have wind/hail coverage, they will risk losing the contents of their condominium if a windstorm or hurricane tears the roof off or blows the windows in."

The housing market hitting bottom? Don't bet on it

> Posted by Paul Owers on June 27, 2008 12:55 PM

South Florida's housing picture is so grim that one real estate firm in Palm Beach County brought in a meditation specialist this week to work with its stressed-out agents. Read about it here.

Some market observers point to the gradual increases in existing-home sales since January as a sign that the bottom has come and gone. But don't be so sure. As I point out in a story today, unemployment's up, consumer confidence is down and food and gas prices, along with mortgage rates, keep rising.

Feel free to weigh in. Will the economic turmoil stifle home sales in the months ahead?

Putting off rate hikes

> Posted by Julie Patel on June 27, 2008 08:07 AM

A property insurance bill that gained steam early in Florida's lawmaking session -- shrinking the Hurricane Catastrophe Fund by $3 billion -- never even got a vote in the Senate. The state fund offers insurers cheaper backup coverage and it was expanded from $16 billion to $28 billion last year to help lower rates.

This year, some lawmakers hoped to shrink the fund because they were worried the state wouldn't be able to issue enough bonds to pay claims if it's hit with a major storm. Legislators who were ambivalent about the idea said they figure the new $12 billion layer of the fund is set to expire in two years anyway.

Ultimately, many lawmakers changed their minds about the idea because state actuaries projected shrinking the fund would trigger rate hikes in South Florida of as much as 2.4 percent or up to 8.6 percent, depending on whether the estimate assumes insurers calculate backup coverage costs by region or statewide.

Either way, lawmakers said they felt Floridians couldn't handle rate hikes when the economy is souring.

My question is, if cutting the fund's new $12 billion layer by one-quarter could potentially bump up rates by up to 8.6 percent, what's the forecast when the full $12 billion expires in 2010? Let's hope the economy gets better by then or private backup coverage is much cheaper.

June 26, 2008

Insurers fight to keep information private

> Posted by Julie Patel on June 26, 2008 04:50 PM

Insurance industry representatives took a clash they had with regulators this morning to the Internet, blasting the Florida Office of Insurance Regulation on its Web site.

"A seemingly innocuous rule change proposed for Florida’s insurance system could further dissuade insurance companies from doing business in the state," says a statement on the National Association of Mutual Insurance Companies' Web site.

The state periodically reviews the market conduct of an insurer and publishes the analysis on its Web site as a service to consumers shopping for insurance. At a hearing in Tallahassee this morning, the Office of Insurance Regulation considered eliminating a rule that allows an insurer to ask for an informal hearing to make changes to the report before it's published.

"It appears the real intent of the proposed rule change is to allow the OIR to release negative information about insurers to the public before companies have a chance to dispute and resolve concerns in a confidential setting," charges a NAMIC official in the statement.

Office of Insurance Regulation spokesman Tom Zutell said the office is considering nixing the rule because it echoes one that is already on the books, giving insurers the right to a formal hearing after the market conduct report is published on the Office's Web site. Zutell said nothing was decided on the rule this morning.

"The Office appreciates NAMIC’s concerns and will take theirs into consideration as we do all others," Zutell wrote in an e-mail. "The Office’s reason for repealing the Rule is because the statute already sets out the insurers’ rights for a hearing before the Office releases its Examination Report on a company."

Reinsurance Part II

> Posted by Julie Patel on June 26, 2008 04:07 PM

Major property insurers are scaling back from hurricane-prone Florida because they say it's a risky business. So why are some putting their investment dollars in reinsurance, backup coverage? Reinsurers are the ones who carry much of the real risk for insurers and they're blamed for driving up insurance prices after the hurricanes of 2004 and 2005.

Maybe the reason some consider reinsurance the root of the problem -- that reinsurers operate in a free, unregulated market and charge what they can get -- is why others think it’s a good buy.

-Allstate Insurance Co. quadrupled its shares of RenaissanceRe stock to 82,479 shares from mid-2006 to the end of 2007, according to SEC filings. But the reinsurance company's stock makes up less than 1 percent of its investments. RenaissanceRe has beefed up the business it does in the state in recent years.

-State Farm Mutual Automobile Insurance Company has invested in two RenaissanceRe companies, including DaVinci Reinsurance Ltd. State Farm also owns half of Top Layer Re, a RenaissanceRe company that offers backup coverages for non-U.S. catastrophes.

Martin Grace, professor of risk management at Georgia State University, likens insurers’ investment in reinsurance to buying stock in oil companies when prices spike: “Why not make up the price you pay at the pump? Why not take advantage of that if it’s a good investment?”

But what may be a smart investment for a shareholder, may spell trouble for consumers, said Rob Friedman, an attorney representing a team of attorneys appointed by Gov. Charlie Crist to look into whether the state should sue insurers.

Friedman said Allstate may be sending mixed messages to consumers by scaling back from Florida but investing in a reinsurer focused on Florida.

“When the money flowing from Floridians’ pockets into Allstate’s bank account is then reinvested in Florida reinsurance, that should tell you something about what Allstate really thinks of the level of market risk,” Friedman said.

"While we regret having had to reduce our property customer base, and did not make that decision lightly, we did so to help ensure that Allstate Floridian can continue to protect its remaining customers should another Hurricane Katrina-like storm hit. Our first concern remains the protection of our customers, and meeting the promise we have made to them to be there in times of need."

State program runs out of cash but still buys ads?

> Posted by Julie Patel on June 26, 2008 02:07 PM

When Sun-Sentinel reader Leo Brookman saw an ad in May for the My Safe Florida Home program in the paper, he picked up the phone immediately and called to ask about the status of his application for a $5,000 matching grant that could help him hurricane-proof his home.

He was told the state ran out of money for the grant. So, he asked me, why is the state squandering taxpayer money running ads for the program?

As it turns out, the program still has money for another grant it provides for free wind inspections, which typically cost $150 each but could save homeowners thousands of dollars on their insurance premiums.

The state stopped running the ads, which were for the free inspections not the matching grants, by the second week of May, said My Safe Florida Home program administrator Tami Torres. She said the program spent $1.3 million -- or less than 1 percent -- of its $250 million budget on its advertising and public education campaign.

Thanks in part to the ads, not only are more consumers aware of the money available, but they're also more cognizant of the importance of upgrading their homes to make them safer and save on insurance.

More than 365,000 Florida homeowners have signed up for the free inspections and the state will keep taking applications until it meets the legislatures' goal of 400,000 applications.

> Posted by Paul Owers on June 24, 2008 02:37 PM

Little is know about Rybolovlev, but he heads a fertilzer maker called JSC Uralkali and is No. 59 on Forbes’ list of the world’s billionaires with a $12.8 billion fortune. Rybolovlev released a statement to the Journal saying the home merely was an investment and that he does not plan to live in the United States.

We hear the deal for the estate at 515 N. County Road is set to close in July. Trump paid $41.35 million for the home during a 2004 bankruptcy auction.

June 20, 2008

Are you still struggling to pay for insurance?

> Posted by Staff Writer on June 20, 2008 05:31 PM

Private property insurers, some of them new, are fueling competition and apparently helping drive down prices in Florida. See my story about that.

But that doesn't mean consumers aren't still struggling to pay insurance premiums. Some who have called me in recent months say they aren't seeing the savings. Others say the savings now aren't making up for premiums that doubled or tripled in some cases after the 2004 and 2005 hurricanes. Information gathered by Michael Letcher, president of Home Insurance Buyers Guide, seems to support this.

About 310 -- or about 20 percent -- of a sample of 1,500 insurance guide subscribers who responded to a survey from December to April said their insurance is too expensive. Of that, about 47 percent have Florida-based companies -- which surprised Letcher (The other 53 percent are with national carriers or state-backed Citizens Property Insurance Corp.)

"So even though the Florida companies complied more fully with the 2007 legislation to bring rates down, they are in many cases still viewed as overpriced," Letcher said.

June 18, 2008

The "Wild Wild West" of the insurance industry

> Posted by Paul Owers on June 18, 2008 05:49 PM

In the war against property insurance prices, Florida homeowners have a hidden enemy: reinsurance, or backup coverage.

It’s hidden because homeowners don’t buy reinsurance directly; insurers buy it and pass the cost through rates. As demand grows for insurance and reinsurance to cover skyscrapers and housing complexes springing up around the globe, prices are expected to creep up and consumers here at home would feel the pinch.

In hurricane-prone Florida, the problem runs deeper: it isn’t just that reinsurance prices spiked after devastating hurricanes in 2004 and 2005 but also that insurers are covering more of the windstorm risks with backup coverage. For instance, Allstate Floridian Insurance Co. started buying reinsurance in 2005 to help spread its risk. Some smaller insurers in Florida use reinsurance to cover up to 90 percent of their risk.

When that happens, said Martin Grace, professor of risk management at Georgia State University, insurers “are basically agents....They’re not retaining any risk; they’re just selling it.”

Florida regulators routinely knock down rate requests from insurers but they have little ammunition against reinsurers. That’s why a representative of a major insurer has called it "the Wild Wild West" of the insurance industry. Historically, lawmakers expected insurance companies to negotiate the best prices when buying reinsurance. Regulating reinsurers would also be difficult because most are headquartered abroad.

But the state has had an impact on reinsurance rates in recent years. After some homeowners' insurance premiums doubled and tripled a few years ago, lawmakers expanded a program offering insurers cheaper reinsurance in exchange for passing the savings to consumers. The program helped bring rates down by a statewide average of 16 percent last year.

This year, state officials held hearings to identify problems contributing to the state’s property insurance crisis and reinsurance surfaced repeatedly. Lawmakers grilled insurers about passing the cost of buying “excessive” reinsurance to consumers and about buying backup coverage from affiliates - which could allow related companies to profit.

June 17, 2008

Is Citizens' rate freeze good for consumers?

> Posted by Paul Owers on June 17, 2008 03:50 PM

Newspaper headlines recently declared an extended freeze on Citizens Property Insurance Corp.'s rates as part of a sweeping property insurance bill signed into law. Sounds like a great move for consumers, right? But another part of the law could pump up premiums for certain Citizens' policyholders. A provision of the law restructures how fees are charged on Citizens' and non-Citizens' policies to help offset Citizens' deficits.

Under the old law, Citizens policyholders who were considered "homestead" properties -- including condo associations -- would have been charged up to 30 percent of their premiums if only the first levels of fees were triggered. That's up to 45 percent with the new law.

But if more levels of fees are triggered, the so-called homesteaders would pay less under the new law. Citizens legislative czar Christine Turner assured me that it's "highly unlikely" that only the first few levels of assessment would be triggered if there were a hurricane.

Does that mean the roughly $2.7 billion collected from the first two levels -- combined with the about $175 million in net revenue on average that Citizens collects monthly -- would not be enough money if there's a major hurricane? (Citizens reports $2.6 billion in damages from Wilma.)

If true, that's probably a bigger concern for consumers -- who all pay fees to offset Citizens' deficits -- than the possibility of rate increases for a select few.

June 16, 2008

Is builder's $2,000 incentive enough?

> Posted by Paul Owers on June 16, 2008 12:35 PM

If you toured one of D.R. Horton’s three local housing developments and gave away your contact information in the process, you’re probably getting e-mails like this:

“Use your economic stimulus check for a downpayment on your new D.R. Horton home in any of our Southeast Florida communities and we will contribute $2,000 towards the purchase of your new home,” the gimmick reads.

Builders everywhere are slashing prices and dangling incentives to get buyers to commit. Are you willing to sign a contract for $2,000 off or does D.R. Horton need to up the ante to get your business?

June 13, 2008

Is housing analyst right on or in need of reality check?

> Posted by Paul Owers on June 13, 2008 11:55 AM

There's plenty of discussion online about my story today on the optimistic outlook of housing analyst Lawrence Yun.

The chief economist for the National Association of Realtors says South Florida is poised for a strong rebound and that home prices here could be 20 to 30 percent higher by 2013. That contradicts what most housing experts think.

Yun often is accused of being laughably upbeat because he works for a group that wants to promote home sales.

So what do you think? Is Yun on to something or is his forecast not to be believed?

June 12, 2008

Just wait until 2013

> Posted by Paul Owers on June 12, 2008 12:17 PM

Home prices in South Florida “easily” could be 20 to 30 percent higher in five years, the famously optimistic chief economist for the National Association of Realtors said today at a conference in Coral Gables.

While prices across the region continue their steep declines, Lawrence Yun calls 2008 a “year of cleanup.” He says mortgage market conditions are improving and that foreign buyers will help boost home sales through the rest of the year.

Yun went so far as to say price increases might start to occur here in 2008.

A decade from now, we’ll look back on all this as a “small blip on the radar screen,” Yun told agents at the Real Estate Congress & Expo at the Biltmore Hotel.

Keep in mind, though, that Newsweek just called Yun the “Little Orphan Annie of forecasters" for his consistently upbeat predictions in the face of dire market conditions.

Citing strict lending standard and the supply of unsold homes, many analysts say things won't start to get better in South Florida until late 2009 or 2010.

June 11, 2008

National interest in home equity story

> Posted by Paul Owers on June 11, 2008 02:47 PM

A new national radio show found the story I wrote Sunday on disappearing home equity lines of credit.

John Hockenberry and Adaora Udoji, hosts of The Takeaway, interviewed me Wednesday morning about the trend of lenders reducing or freezing equity lines because of declining property values.

As the article points out, banks don’t bother to appraise properties on site or care that you have a good credit history. You’re in jeopardy of losing access to the cash if you live in a market like South Florida where home values have plummeted.

Big home price cuts loom in South Florida, report says

> Posted by Paul Owers on June 11, 2008 11:45 AM

South Florida homes already have lost plenty of value in the past two years, but it will take even more price declines to get back to the affordable days of 2000 to 2003, according to a recent Deutsche Bank report.

In Palm Beach County, prices would have to fall 38.1 percent from now until the end of the housing slump, the report says. Broward County prices would need to drop 36 percent.

If South Florida reaches that level of affordability, prices will have fallen by 46.5 percent in Palm Beach County from the peak of the boom in 2005 to the end of the slump. Broward prices will have plummeted 47.9 percent, peak to trough.

Those two percentage declines would be the most in the nation, the report shows.

Karen Weaver, a research analyst for Deutsche, said she expects prices here to keep dropping, based on current trends in home sales, foreclosures, consumer confidence and other factors.

Housing experts say it could be 2009 or 2010 before the market hits bottom.

Deutsche’s conclusion: “The U.S. economy is in a recession, or very close to one. This portends a more painful correction for home prices, all else equal, than what we would have been looking at in a healthier economy. Our forecast assumes that, nationwide, we’re a little less than halfway through this correction.”

June 10, 2008

An insurance option worth considering

> Posted by Julie Patel on June 10, 2008 02:10 PM

Make your home safer and save money.

Does that sound too good to be true?

Believe it, say state leaders. Hurricane mitigation, or making homes more hurricane-resistant, is the one thing Florida lawmakers agree on, even when they fiercely quarrel over property insurance measures. They like it because insurers are more likely to lower rates for homes that are stronger and less prone to hurricane damage.

"That's the real true answer to the crisis, it really is," Sen. Bill Posey, R-Rockledge, chair of the Senate Banking and Insurance Committee, told the Sun-Sentinel last year.

The belief in mitigation led the state to create the $40 million My Safe Florida Home program. It provides eligible homeowners with free inspections to help them find and document hurricane-resistant features that they may not even know about. (See videos below.)

But if your home lacks key hurricane-resistant features, is the expense of upgrades worth it?

Most readers who call me to talk about mitigation say "yes" because their premiums dropped after they got better shutters or a stronger roof.

But a few readers have called to complain, saying they’re disappointed they didn’t get the savings they expected because they already had too many credits from other mitigation measures.

A Metropolitan Property and Casualty Insurance customer called me to say the insurer dropped him shortly after lowering his premium for mitigation discounts. A MetLife spokesman said the reduced premium did not have anything to do with the customer's being dropped; the MetLife company he was with is scaling back from Florida but other MetLife companies are still writing new homeowners policies in the state.

That said, there are great reasons to go through with upgrades even if you don’t get the savings you expected: You’ll probably increase the value of your home and it will be safer in a hurricane. Which means you’ll get back to normal life sooner and may not have to worry about getting a claim paid.

What do you think? What has your experience been with inspections and upgrades?

To apply for a free inspection from My Safe Florida Home, visit mysafefloridahome.com or call 866-513-6734.

Selling in South Florida? Be patient

> Posted by Paul Owers on June 10, 2008 12:40 PM

There’s no place quite like South Florida when it comes to selling a home.

In the Miami metropolitan area, which includes Broward and Palm Beach counties, properties stayed on the market an average of 152 days, by far the worst in the nation, according to a May report of 26 metro areas released this week by real estate firms Altos Research LLC and Real IQ.

Miami had been neck-and-neck with Detroit for the most days on market, but the Motor City left us in the dust when its DOM (days on market) declined from 143 in April to 128 in May.

Detroit still ranks second, with Tampa Bay third (121 days).

The easiest place to sell? That would be San Francisco, with 73 days on market. Salt Lake City, Utah, was the next best, at 76 days.

A glut of properties for sale, exacerbated by the foreclosure crunch, is what’s largely responsible for the malaise here and elsewhere.

Homes will sell faster when prices fall far enough – and the latest report from the Florida Association of Realtors indicates that buyers in South Florida are starting to take notice as sellers slash prices.

“But it may take several years to work off all that inventory, even if sales pick up a little bit,” Altos CEO Mike Simonsen said.

June 9, 2008

The House Keys welcome mat

> Posted by Paul Owers on June 9, 2008 01:52 PM

Welcome to the Sun-Sentinel's real estate/property insurance blog. Julie Patel and I will weigh in regularly on two topics that do not lack for interest and emotion. Feel free to join the discussion.

We begin with The Donald.

Going for $100 million?

Celebrity developer Donald Trump went on television last month, saying he has a Russian buyer willing to pay $100 million for his 81,000-square-foot oceanfront mansion in Palm Beach. The sale would be a record for the island.

If the deal closes -- and it's no sure thing -- it likely will be in July.

Reached at his New York office last week, the normally loquacious Trump had to do something he hates: decline comment. Mum's the word because of a confidentiality clause he signed.

Trump bought the palace formerly owned by health care magnate Abe Gosman for $41.35 million in 2004. Gosman had to give it up after filing for bankruptcy protection from creditors.

Trump oversaw a massive renovation of the home at 515 N. County Road, then put it on the market for $125 million.

He finally had to knock $25 million off the price when the home didn't sell. They say the luxury housing market is immune to the slump, but even rich and famous sellers are capitulating -- to a degree, anyway.

PAUL OWERS is a West Palm Beach native who graduated from the University of Central Florida in 1989. He covers the housing market for the Sun Sentinel after spending seven years on the real estate beat for that daily paper just up the road. He has impeccable timing, arriving at the Sun Sentinel on the very day that Hurricane Wilma pummeled South Florida. The real wrath came in early 2006, from readers, when he wrote that the five-year housing boom was over. They argued, cursed and complained before grudgingly admitting he was right.Follow @paulowers

JULIE PATEL covers property insurance and Florida Power & Light Co. for the Sun Sentinel. Julie previously worked at the San Jose Mercury News where she covered race and demographics issues, education, city government and the San Francisco 49ers' potential move to the San Jose area. Julie earned a master's degree in communications at Stanford University and a bachelor's degree at the University of Chicago. Julie was born in India and raised in Chicago. She enjoys dancing, painting, cooking and roller skating.Follow @juliepatel